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Deutsche Bank: End of the Road?

I first began focusing on DB in September 2016, when a consulting client asked me to opine as to whether the stock was circling the drain or represented a buying opportunity. In our original post [see: Deutsche Bank, Will it Survive?] I concluded that a huge falling channel dating back to 1997 made it a buy at 11.23.

DB bounced 90% at 11.19, and has since become a favorite trading vehicle of mine — bobbing and weaving predictably enough to have produced some excellent returns over the past two years.

In our last post to focus on DB [Deutsche Bank: On the Ropes] we noted DB had reached channel support which, if broken, would suggest downside to 10.30 (another test of the huge white channel.)

DB reached 10.29 on Jun 27, then reversed and nailed our upside target at 13.06. From July 25’s CIW…

Had the rising purple channel held, 14.72 was up for grabs. But, the channel broke down on Aug 9. As we noted a few days later [see: Currency Crisis on the Horizon] there was little support remaining other than the 10.29 lows.

We were looking for a deep retracement (10.62) and/or white channel backtest a few days later when DB tested 11 again.Clearly, 10.62 would still look like a decent downside target were it not for the fact that someone (say, a Frankfurt-based central bank) is propping up the stock.

While it has obviously completed a H&S Pattern that targets well below 10.62 — all the way down to 8.78 — the pattern hasn’t been permitted to play out yet.

Just yesterday, Reuters reported that Deutsche Bank is looking into “loosening the bond” between its retail and investment banks (good bank, bad bank?), which sounds to me like a precursor to a more dramatic restructuring than has been discussed to date.

Deutsche Bank is considering an overhaul to loosen the bond between its retail and investment banks, according to three people with knowledge of the matter, a move that could make it easier to merge some or all of the group with rivals.

The German lender is examining creating a holding company structure, a step that would give it more flexibility to strike merger deals, as it seeks to regain its footing following years of heavy losses and multi-billion-dollar penalties.

The possibility is likely to be discussed at a meeting of management later this week in Hamburg, other people familiar with the matter said, as the bank’s new chief executive, Christian Sewing, sets a new course for the struggling lender.

Given the $11 floor under the stock and the increased threat of a merger, spinoff, or other value-enhancing restructuring, continuing to hold short is a riskier proposition. If it dips below 11, go for it. Or, consider going long here with stops at 11.

Either way, DB has been a great trading vehicle for the past two years. But, it might very well have reached the end of the road.